Breach of fiduciary duty occurs when a person or entity in a position of trust (the fiduciary) fails to act in the best interests of another party (the principal). Given that fiduciary duty is the highest legal standard of care, any failure to uphold this responsibility can have severe consequences and monetary losses for those who have been entrusted with a fiduciary duty.
Breach of fiduciary duty involves violating the fiduciary’s obligation to prioritize the principal’s interests over their own. Common examples include self-dealing, conflicts of interest, misappropriation of funds, and failure to disclose important information.
Fiduciary relationships exist in various contexts, such as between trustees and beneficiaries, directors and shareholders, lawyers and clients, and guardians and wards. Stockbrokers and financial advisors often have fiduciary duties to their clients, requiring them to provide suitable investment advice and manage assets responsibly.
What constitutes a breach of fiduciary duty?
To prove that breach of fiduciary duty has occurred, the principal must typically demonstrate the existence of a fiduciary relationship, breach of fiduciary obligation, and resulting damages. Remedies may include monetary compensation or equitable relief. In the financial sector, breaches can lead to regulatory penalties and loss of professional licenses.
See below for the detailed information you are looking for.
Investment Losses? We Can Help
The Law Offices of Robert Wayne Pearce, P.A., offers free consultations on breach of fiduciary duty cases. Give us a call at (800) 732-2889. Let’s discuss your case and see what we can do to help you get the compensation you need and deserve.
Investment loss? Let’s talk.or, give us a ring at 561-338-0037.
How Do You Prove Breach of Fiduciary Duty – Four Elements of a Breach of Fiduciary Duty Case
To prove a breach of fiduciary duty, four key elements must be demonstrated: the existence of a fiduciary duty, a violation of that duty, resulting harm, and a causal connection between the breach and the harm.
Duty – There Exists a Fiduciary Duty
There must be an established fiduciary relationship between you and the other party for the fiduciary to owe you a duty.
To hold a fiduciary accountable to their standard of care, it is essential to demonstrate that they knowingly accepted the role. This is typically shown through a written agreement between the parties, such as a customer agreement.
Breach – There Was a Violation of This Duty
Fiduciaries are required to work in the best interests of their clients, and any deviation from this standard may constitute a breach.
To demonstrate a breach of fiduciary duty, one must have evidence that the individual holding this responsibility acted negligently or maliciously—or prioritized their own interests over yours.
This can include lost investments, diminished value of your assets, outright theft, decisions made without your consent, or failure to carry out one’s fiduciary responsibility.
You can also prove a breach through the fiduciary’s failure to act—for example, not disclosing a conflict of interest.
It is best to speak with an investment fraud lawyer to determine if your fiduciary failed in their responsibility and contributed to your losses.
Damages – The Breach of Duty Resulted in Harm to You
For there to be a legitimate claim of breach of fiduciary duty, the breach must have caused you to suffer damages.
Proving there was a breach is not enough for a valid claim of breach of fiduciary duty.
Unless you can demonstrate how the violation of fiduciary duty directly caused you to suffer damages, your claim may not be successful.
Damages can be either economic or non-economic, such as mental anguish.
Causation – There is a Connection Between the Breach and the Harm
There must be a direct link between the fiduciary’s breach and harm to you.
If you incurred damages that cannot be connected to the individual’s breach, your claim may not be successful.
Breach of Fiduciary Duty Examples
Breaches of fiduciary duties can take many forms. A fiduciary must act in the best interests of their client. When they fail to do so, serious harm can result. Examples of a breach of fiduciary duty include misrepresentation or failure to disclose information, excessive trading, unsuitable investments, failure to diversify, and failure to follow instructions.
Misrepresentation or Failure to Disclose Information
If a financial advisor does not present a client with all material information about an investment, this is a breach of fiduciary duty. Material information is what a reasonable investor would consider important when deciding whether to invest.
Sometimes financial advisors will mislead investors by omitting information, such as risk factors or any negative information about a stock.
Excessive Trading
Excessive trading, also known as churning, in your account is a breach of fiduciary duty. Financial advisors or stockbrokers will make large numbers of trades solely to generate more commissions for themselves.
Unsuitable Investments
Financial advisors must “know their customer” before making investment recommendations. This includes understanding the client’s investment objectives, risk tolerance, time horizon, financial standing, and tax status. The advisor breaches their fiduciary duty if they make an unsuitable investment, even with the best intentions.
Failure to Diversify
Your financial advisor must recommend a mix of investments so that your assets are properly allocated among various asset classes and industries. Failing to diversify your portfolio puts you in a position of great risk and is a breach of fiduciary duty. If your assets are over-concentrated in a particular stock or sector, you may experience significant losses if the company or industry does not perform well.
Failure to Follow Instructions
When you give instructions to your financial advisor, they have the fiduciary duty to promptly perform your orders. If your advisor fails to follow your instructions in a timely manner and you suffer financial losses, you can recover.
Can You Pursue a Lawsuit for a Breach of Fiduciary Duty?
Yes, you can pursue a lawsuit for a breach of fiduciary duty. You will need to speak with an investment fraud lawyer to determine if your fiduciary failed in their responsibility and contributed to your losses. It is important that you prove there was a breach, damages were caused, and the breach was directly connected to the harm you suffered in order for your lawsuit to be successful.
Do you believe you’ve been the victim of a breach of fiduciary duty? Don’t wait – contact an experienced investment fraud attorney as soon as possible to learn more about your legal rights and options.
Contacting a lawyer who specializes in investment fraud can help ensure that your legal rights are protected and allow you to pursue any damages or losses caused by the breach of fiduciary duty.
Investment Losses? We Can Help
Discuss your legal options with an attorney at The Law Offices of Robert Wayne Pearce, P.A.
or, give us a ring at (800) 732-2889.
What Is a Fiduciary Duty?
A fiduciary is a person entrusted to act in the best interests of another (i.e. the principal). Once the fiduciary agrees to the relationship, the fiduciary is bound by a set of legal and ethical obligations, known as fiduciary duties.
In general, all fiduciaries owe a duty of loyalty and a duty of care. Some fiduciaries will owe additional duties based on the relationship and the industry in which they are in.
The duty of loyalty requires fiduciaries to act in the best interest of the principa, avoid any conflicts of interest, and refrain from self-dealing. The duty of care means the fiduciary must make informed decisions based on all information available.
Fiduciary Duties of Financial Advisors
While all financial advisors and stockbrokers have a duty of care to their clients, only registered advisors have a fiduciary duty. It is important to know whether your financial advisor is registered with the U.S. Securities and Exchange Commission (SEC) or a state securities regulating agency. Financial advisors who are not registered can make investments that benefit them, as long as the investment is within your stated objectives. A registered financial advisor, on the other hand, can invest only if it is in your best interest.
For registered financial advisors, the fiduciary duties owed vary by state. However, the following fiduciary duties apply to all registered financial advisors in all states
Duty to Recommend Suitable Investments
Prior to recommending an investment, the financial advisor must study and understand the investor’s objectives, tax status, and financial situation, among other things. Any investments that the financial advisor recommends must be suitable to the investor’s needs.
Duty to Inform Investor
A financial advisor must fully inform the investor of the risks associated with the purchase or sale of a security. The advisor cannot misrepresent any material facts regarding the transaction.
Duty to Act Promptly and with Authorization
All client orders must be performed promptly and with investor’s express consent. The advisor must obtain separate authorization for each investment unless the investor has a discretionary account.
Duty to Refrain from Self-Dealing
A financial advisor cannot initiate a transaction where he or she personally benefits.
Duty to Avoid Conflicts of Interest
For any recommendations made after June 30, 2020, financial advisors have a fiduciary duty to avoid any conflicts of interest. If unavoidable, the advisor must disclose the conflict to the investor.
What To Do If Your Financial Advisor or Stockbroker Breached a Fiduciary Duty
If you lost money at the hands of your financial advisor or stockbroker, there are several potential courses of action. An experienced investor loss recovery attorney can walk you through the different options and recommend which is best for you.
You should first consider discussing the issue with your advisor or the brokerage firm’s compliance department. If you cannot resolve the issue, your next option may be mediation or arbitration through the Financial Industry Regulatory Authority (FINRA). Lastly, unless you waive your right, you can file a lawsuit against your financial advisor for breach of fiduciary duty.
Depending on the nature of the breach, your advisor could be civilly liable.
Contact a Lawyer with Experience Handling Breach of Fiduciary Duty Claims
If you believe your financial advisor or stockbroker breached a fiduciary duty to you, contact The Law Offices of Robert Wayne Pearce P.A. We have over 40 years of experience representing those who have been wronged by a fiduciary and have recovered over $175 million in investment losses for our clients.
Our team of securities attorneys understands the complexity of these types of cases. We can provide you with the support to protect yourself and recover your losses. Contact us for a complimentary review of your case.
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